Transcript of CASE STUDY #2

PLAN A:
Plant 1 + Plant 2
Total cost = (P1+P2) = PC(P1) + PC(P2) + Non operating cost + Distribution
TOTAL COST COMPARISON
PLAN C:
PLANT 2 + PLANT 3
Total cost= PC(P1) + PC(P2) +
Non Operating Cost + Distribution Cost

PLAN B:
Plant 1 + Plant 3
Total cost= PC(P1) + PC(P2) +
Non Operating Cost + Distribution Cost
CASE STUDY #2
Andrew Carter, Inc.
Actual demand = 56,000
Units produced = 59,000
Excess units = 3,000

Plant 1, on OT highest variable cost = 7,000 3,000 = 4,000

ACTUAL DEMAND 56,000

UNITS PRODUCED 65,000
EXCESS DEMAND 9000

PLANT 1 OT =9000-7000=2000
PLANT 3 OT =6000-2000=4000

Actual demand = 56,000

Units produced = 56,000

TRANSPORTATION MODEL
ERENETA
GONZALES
QUITILEN
VITANGCOL
INTRODUCTION
Major Canadian producer and distributor of outdoor lighting fixtures
operates
three manufacturing plants
five distribution warehouses.
CLOSE 1
PLANT
= EXCESS CAPACITY OF 34,000 UNITS/WK
ANDREW CARTER, INC.
Q. 1: Evaluate the various configurations of operating and closed plants that will
meet weekly demand. Determine which configuration minimizes total costs.
DISCUSSION
3 CONFIGURATIONS
FORMULAS
b) Total Cost
Plan A (P1+P2) = PC(P1) + PC(P2) + Non operating cost + Distribution cost
Plan B (P1+P3) = PC(P1) + PC(P3) + Non operating cost + Distribution cost
Plan C (P2+P3) = PC(P2) + PC(P3) + Non operating cost + Distribution cost

a) Production Cost/PC

= Total Variable Cost + Total Operating Fixed Cost

(Total Variable Cost = Plant capacity in units * VC per unit)
1
2
3
WEEKLY DEMAND
PRODUCTION COST
DISTRIBUTION COST
Total cost = (P1+P2) = PC(P1) + PC(P2) + Non operating cost + Distribution Cost
= [(27,000 x $2.80)] + (4,000 x $3.52) + $14,000] +
[(20,000 x $2.78) + (5,000 x $3.48) +12,000] + $7,500 + DC

= $196,180 + Distribution Cost

DISCUSSION
Q.2: What're the implications of closing a plant?
BENEFITS
1. Lower fixed operating cost
2.Lower inventory holding cost
3. Increase workers utilization

CHALLENGES
1. Cost of termination and rehiring
2. Negative reputation of the company
3. Backorder and lost sales
4. Adjusting output rates
5. Workforce arrangement

UNINTENDED OUTCOMES
1. Work Attitudes

> Distrust & anxiety

> High job insecurity
> Low job satisfaction
> Low motivation
> Low loyalty

2. Behavior Reactions

> Intention to leave

> Resistance to change
> Loss of key knowledge
> Increase absenteeism
> Shift of employee loyalty

3. Organization Impacts

> Profitability
> Competitiveness
> Quality
> Image
> Stock price
> Customer relation

CONCLUSION
> Most favorable structure is Plan B
> Closing Plant 2

PRODUCTION COST
DISTRIBUTION COST
Total cost = (P1+P3) = PC(P1) + PC(P3) + Non operating cost + Distribution Cost

= [(27,000 x $2.80)] + (0 x $3.52) + $14,000] +

[(25,000 x $2.72) + (4,000 x $3.42) +15,000] + $5,000 + Distribution Cost

= $196,180 + Distribution Cost

PRODUCTION COST
Total cost = (21+P3) = PC(P2) + PC(P3) + Non operating cost + Distribution Cost
= [(20,000 x $2.78)] + (5,000 x $3.48) + $12,000] +
[(25,000 x $2.72) + (6,000 x $3.42) +15,000] + $6,000 + Distribution Cost

= $194,520 + Distribution Cost

DISTRIBUTION COST